White House says jobs report is a good sign, but warns of budget cuts

People wait on line to meet with recruiters during a job fair in Melville, N.Y., last year. (Shannon Stapleton ……look out for the impact of across-the-board spending cuts known in D.C. as “sequestration.”

The American economy added 236,000 jobs in the month of February and unemployment dropped from 7.9 in January to 7.7 percent last month, according to new figures released on Friday morning by the Bureau of Labor Statistics.

The White House cheered the report. Alan B. Krueger, chairman of the Council of Economic Advisers, said in a White House blog post that “while more work remains to be done, today’s employment report provides evidence that the recovery that began in mid-2009 is gaining traction.”

But Krueger emphasized that the data came from early February, “before sequestration began.” Those cuts, roughly $85 billion for the rest of the fiscal year, are expected to whittle down economic growth and cost jobs, according to nonpartisan analysts.

“The monthly employment and unemployment figures can be volatile, and payroll employment estimates can be subject to substantial revision,” Krueger said. “Therefore, it is important not to read too much into any one monthly report and it is informative to consider each report in the context of other data that are becoming available.”

Krueger's comments recalled President Barack Obama's March 1 admonition that failing to replace sequestration would hold down what remains a slow but steady recovery—comments that sounded very much like an insurance policy against the potential political damage to come. "Every time that we get a piece of economic news, over the next month, next two months, next six months, as long as the sequester is in place, we’ll know that that economic news could have been better if Congress had not failed to act," Obama said.

Republicans greeted the report as decent news, but they declared the economy was still weaker than it should be.

“Any job creation is positive news,” Republican House Speaker John Boehner said in a statement. “But the fact is unemployment in America is still way above the levels the Obama White House projected” four years ago in the debate over the stimulus package.

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Mortgage insurer PMI Group warns it may shut down (AP)

NEW YORK – Mortgage insurer The PMI Group Inc. warned investors on Thursday that it may be unable to continue selling new policies and could shut down.

The news sent shares of the Walnut Creek, Calif.-based company plunging to their lowest point in more than two years.

On a day when the broader markets were battered by economic concerns, the stock closed down 47 cents, or 53.4 percent, at 41 cents. Shares were last that low in March 2009, and had changed hands as high as $4.68 in the past 52 weeks.

PMI shares topped $50 a share in 2007, before the housing bubble burst. But the company has posted more than $3.5 billion in losses since 2007 as it paid out claims on foreclosed homes.

That includes a loss of $134.8 million, or 83 cents a share, for the three months ended June 30, which the company reported on Thursday.

Now, the company's main subsidiary, PMI Mortgage Insurance Co., or MIC, doesn't have enough money on hand to meet the requirements of regulations in Arizona, where it is based. The company said the state's insurance department may as a result move to stop it from selling new policies in all states and move to rehabilitate or liquidate the unit.

PMI has known such action was a possibility for some time, and as a backup plan it set up another subsidiary, called PMI Mortgage Assurance Co., that could sell mortgage insurance in certain states.

However, the company warned Thursday that the approval to sell policies on mortgages backed by Fannie Mae and Freddie Mac depends upon MIC continuing operations. PMI said "there can be no assurance" that the two government-sponsored mortgage buyers will allow the PMI Mortgage Assurance to continue selling policies.

Like other mortgage insurers, PMI has been able to sell profitable policies in recent years, but the gains from those sales hasn't outpaced losses from policies sold during the bubble.

Compounding the issue is a sharp rise in the number of previously denied claims that banks appealed and were able to get reinstated by producing better documents to back up them up, CEO L. Stephen Smith said during a conference call on Thursday,

"Our financial results and the trends underlying them present us with serious challenges and a shortened timeline to address them," Smith said.

He said the company is working with a financial adviser to search for ways to raise capital.

"We are concentrating on capital alternatives that, if successful, could provide capital or capital relief to MIC or could provide capital to other subsidiaries so that they may replace MIC as our primary writer of new insurance," the CEO said. "All of the alternatives are complex and require the commitment and cooperation of our key constituents."

The company stopped short of saying it may file for bankruptcy protection, but Chief Financial Officer Donald Lofe said that such a move may be considered

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S&P warns it may downgrade Fannie, Freddie credit (AP)

WASHINGTON – Standard & Poor's warned mortgage giants Fannie Me and Freddie Mac on Friday that they may lose their top credit ratings if lawmakers don't raise the U.S. government's borrowing limit in time to avoid a default.

S&P said government-controlled Fannie and Freddie, along with certain Federal Home Loan Banks and Farm Credit System Banks, could also default on their debts, given each institution's "direct reliance on the U.S. government."

The rating agency this week threatened to lower the U.S. government's credit rating if the White House and Congress can't agree to raise the $14.3 trillion borrowing limit and avoid a default in the coming weeks. It said there was at least a one-in-two likelihood that it will lower the rating within the next 90 days.

On Wednesday, Moody's Investors Services said it is also reviewing the government's triple-A bond rating.

The government reached its borrowing limit in May. The Treasury Department has said that the government will default on its debt if the limit isn't raised by Aug. 2.

Congressional and Obama administration officials met for a sixth day Friday in an effort to avert a default. But Obama conceded that "we're running out of time."

Attention has turned to a fallback plan being discussed by Senate Republicans and Democrats. The plan would give the president greater authority to raise the borrowing limit while setting procedures in motion that could lead to federal spending cuts.

Administration officials and economists say a default on the debt would have a devastating effect on the U.S. economy.

Federal Reserve Chairman Ben Bernanke told a Senate panel this week that a default would force the federal government to pay higher rates on its debt. Treasury rates serve as the benchmark for many consumer and business rates, including mortgages. So higher government rates would raise borrowing costs for consumers and businesses.

Fannie and Freddie own or guarantee about half of all U.S. mortgages, or nearly 31 million home loans worth more than $5 trillion. As part of a nationalized system, they account for nearly all new mortgage loans. So anyone looking to buy a home would be forced to pay higher rates on new loans.

The Bush administration seized control of the mortgage giants in September 2008, hoping to stabilize the beleaguered housing industry. The Federal Housing Finance Agency has acted as regulator, overseeing it as calls for the gradual dismantling of both companies have increased.

Taxpayers have spent roughly $150 billion to rescue Fannie and Freddie, the most expensive bailout of the 2008 financial crisis. The government estimates the final cost for rescuing Fannie and Freddie could go as high as $259 billion.

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